Retail the focus of indian banks

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RETAIL: The Focus of Indian Banks

TABLE OF CONTENTS

Sr. No. Topic Page No.1 Executive Summary 5

2 Retail Banking in India 62.1 The Paradigm Shift 62.2 Differences between Retail and Corporate Banking 82.3 Growth Drivers 8

3 Retail Boom 124 Scope for Retail Banking in India 155 Marketing Mix 15

5.1 Types of Retail Banking Products 155.2 Pricing 175.3 Distribution 175.4 Promotion 17

5.5 Cross Selling 186 Special Features of Retail Credit 187 Advantages of Retail Banking 198 Disadvantages of Retail Banking 219 Competition 22

10 Strategies for increasing Retail Banking Business 2511 Challenges to Retail Banking in India 2712 Emerging Issues in Handling Retail Banking 2813 Latest Happenings 3214 Case Study: Comparison of HDFC Bank and ICICI Bank Products 3815 Customer Survey 4516 Future of Retail Banking in India 5317 Annexure 57

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EXECUTIVE SUMMARY

Retail banking refers to provision of banking services to individuals and small business where the

financial institutions are dealing with large number of low value transactions. The concept is not

new to banks but is now viewed as an important and attractive market segment that offers

opportunities for growth and profits. Liberalization, economic growth, changing demographics,

and technological advancements have fueled the growth of retail banking in India.

The product range in retail banking includes four broad categories: liability products, asset

products, credit cards/debit cards, and investment products.

Retail banking in India has fast emerged as one of the major drivers of the overall banking

industry and has witnessed enormous growth in the recent past. The Retail Banking Report would

encompass extensive study & analysis of this rapidly growing sector. It would primarily cover the

difference between retail banking and core banking, analysis of the present status, current trends,

major issues & challenges in the growth of the Indian retail banking sector vis--vis global

scenario. The report would also include the segments of retail lending, category wise distribution,

comparing India with the global peers, major players and their market share, etc. Also a survey

would be conducted to study the consumers awareness regarding banks offerings (retail

products), various factors influencing the purchase decision for the retail products, the

comparative influence of various mediums of advertisements in creating awareness, etc. along

with case studies on the major players in the market.

Retail banking has immense opportunities in a growing economy like India. As the growth story

gets unfolded in India, retail banking is going to emerge a major driver. Improving consumer

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purchasing power, coupled with more liberal attitudes towards personal debt, will further

contribute to Indias retail banking segments.

RETAIL BANKING

Retail banking is typical mass-market banking where individual customers use local branches

of larger commercial banks. Services offered include: savings and checking accounts, mortgages,

personal loans, debit cards, credit cards, and so on.

It is also known as High Street Banking .

A deposit of Rs.1 lakh from single customer v/s small deposits of Rs. 10,000 each from 10

different customers. The corporate and retail divide is nothing but internal segmentations and the

customer remains always a customer.

Retail banking refers to provision of banking services to individuals and small business where the

financial institutions are dealing with large number of low value transactions. This is in contrast

to wholesale banking where the customers are large, often multinational companies, governments

and government enterprise, and the financial institution deal in small numbers of high value

transactions. The concept is not new to banks but is now viewed as an important and attractive

market segment that offers opportunities for growth and profits. Retail banking and retail lending

are often used as synonyms but in fact, the later is just the part of retail banking. In retail banking

all the needs of individual customers are taken care of in a well-integrated manner.

RETAIL BANKING IN INDIA

The Paradigm Shift

There were times when the corporate clientele occupied the centre stage and the retail ones were

pushed to the back seat. The slowdown of the economy, sluggish industrial growth and slump in

agricultural activities have pushed the commercial banks to look to the retail customers.

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Retail banking has both pros and cons. In a situation like today, the bankers have very little

option, but to chant the Retail Mantra

The Retail Banking environment today is changing fast. The changing customer demographics

demands to create a differentiated application based on scalable technology, improved service and

banking convenience. Higher penetration of technology and increase in global literacy levels has

set up the expectations of the customer higher than never before. Increasing use of modern

technology has further enhanced reach and accessibility.

The market today gives us a challenge to provide multiple and innovative contemporary services

to the customer through a consolidated window so as to ensure that the banks customer gets

Uniformity and Consistency of service delivery across time and at every touch point across all

channels. The pace of innovation is accelerating and security threat has become prime of all

electronic transactions. High cost structure rendering mass-market servicing is prohibitively

expensive.

Present day tech-savvy bankers are now more looking at reduction in their operating costs by

adopting scalable and secure technology thereby reducing the response time to their customers so

as to improve their client base and economies of scale.

The solution lies to market demands and challenges lies in innovation of new offering withminimum dependence on branches a multi-channel bank and to eliminate the disadvantage of an

inadequate branch network. Generation of leads to cross sell and creating additional revenues

with utmost customer satisfaction has become focal point worldwide for the success of a Bank.

The domain of retail banking market has tremendous growth potential for banks and finance

companies, as at present it is largely untapped. In the past, people never believed in buying

consumer goods on credit. But today the attitude is changing. The demand for consumer

products has increased. Today, about 70% of consumer goods purchased are through financeschemes/loans as against 40% about 6 years ago. The home loans alone account for nearly two-

third of the total retail portfolio of the bank.

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The perceived stability of the income stream from the retail business is probably the most

important driver of the push into retail. From a strategic point of view, this stability is expected to

offset the inherent volatility of revenues/profits from other lines of business.

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Retail Infrastructure

The second half of the 1990s was a period marked by increased emphasis on (then) new concepts

such as ATMs/Internet/on-line banking as alternative delivery channels.

The past few years, though, have seen a clear revival of the brick-and-mortar concept with the

expansion of the physical branch network, one of the major features of the retail push. It is the

costs being incurred in the creation of the retail infrastructure not only the physical branch

network but the concomitant infrastructure which has to go with a branch which suggests that

this retail push is here to stay and is not transitory.

Banks such as ICICI or HDFC possibly see the physical branch network as a critical requirementin their endeavour to increase the share of retail funding also in their overall funding patterns. In

other words, while credit growth on the retail side is now working well as a business strategy, the

effort now is to expand the overall retail banking franchise itself comprising liabilities as well

as assets.

The macroeconomic picture also suggests that retail credit business, which at present accounts for

a quarter of the total credit business, will significantly rise as a proportion of the total lending

business.

Cross-country studies clearly point to such an outcome with increasing urbanisation, rising

income levels and further development of the financial markets which will provide alternative

means of financing for the other major claimant of bank finance (the commercial/corporate

sector), all indicating that the demand for retail finance will continue to be very strong well into

the future.

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Differences between Retail and Corporate Banking

Corporate Banking means financing to corporate institutions which has been declared as

Corporate entity. Corporate entity means if more than one company falls in the same line of

business, financing terms will be same to all the corporate insitution as whole.

Core banking is a centralized system and every data has been kept at the server side. So, a

costumer can open an account and use it in every branch, whenever the connection between a

branch and the core is dismissed, that branch is out of work till the connection be repaired.

In a retail banking, every branch has its own portion of accounts and the changes will be

synchronized with the center at a certain time (e.g. at the end of that day). So, a costumer canwork on his/her account just as the origin branch that he/she registered, in case of disconnecting,

that branch still can provide services to its own accounts.

Growth Drivers

The growth drivers of retail lending are analyzed as under:

Macro-economic Factors

Shift in the pattern of GDP from hitherto agriculture and manufacturing sectors to services

sector with increase per capita income especially that of the younger generation. [India's

industrial sector accounted for about 21.8% of GDP, where as the services sector

accounted for around 56.1 of GDP in 2002-03 as per revised estimates released by Central .

Statistical Organization].

The lower uptake in the non-retail sector has compelled banks to shift their focus on retail

assets - specially housing finance- for deployment of funds for a longer period, which isconsidered as the safest within the retail portfolio. Housing loans and other retail loans are

comparatively high yielding in terms of interest spread and safer, as risk is diversified

among a large number of individuals across the geographic dimensions. The sector enjoys

a privilege of lowest NPAs amongst all categories of banks.

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Depressed stock and real estate markets as compared to those prevailing in 1992-93 to

1995-96 thereby diverting deposits to the banking sectors. Comparatively stable real estate

prices during last 4/5 years have laid to spurt in demand for housing loans.

Keenness shown by the consumer goods/ automobile manufacturers to -push up finance

schemes through market tie-up with banks with a view to increasing their marketing share.

Demographic / Behavioral Factors

Growing concept of nuclear families than the joint families necessitating need for housing

units as well as other items of consumer durables.

Increased number of dual income families resulting in higher income and savings.

Increased demand for dwelling units due to gradual shift of population from rural/semi-

urban centre to urban/metro centre for employment.

Shift in the attitude of the Indian household from "save and buy' theory to a `buy and

repay' principle.

Increased middle-income segment and their income levels.

Emergence of new sectors such as Information Technology, media, etc. In the economy

that resulted in higher income opportunities and major impact on change in urban

consumption pattern.

Awareness and sophistication in urban and semi-urban households for urban convenience.

Social security and status have also contributed to higher demand for housing units, cars,etc.

Favorable Role of RBI

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Inclusion of housing loans within the priority sector. Direct finance up to Rs.10 -lakhs in

case of rural and semi-urban areas now form part of the priority sector advances. This

promoted banks to go for housing loans in a big way as it helped them to attain their

targets of priority sector lending.

Reduction in risk weight age bank's extending loans for acquisition of residential house

properties to 50 per cent from 100 per cent. Reduction in Capital Adequacy Ratio

requirement has effectively doubled the credit disbursement capacity of banks.

Banks have elongated repayment periods of retail loans years to 50/20 years besides

quoting fixed/ variable rate of interests based on their asset liability management structure

and study of behavioral pattern of demand and time deposits.

Deregulation of interest rate with option to quote fixed/ variable interest rate.

Continuous reduction in bank rate, which resulted in reduction in lending rates as well.

Southward movement in CRR and SLR ratios increasing lending capacity of banks.

Catalyst-Role of Government

Tax exemptions for payment of interest on capital borrowed for purchase/ construction of

house property and principle repayment. This made housing finance affordable and within

the reach of common man. [It is important to note that the housing sector has been

recipient of a large number of fiscal incentives in the last budgets].

These exemptions also changed the profile of the retail segment from hitherto cash

transactions to book transactions.

The Government could not ignore the importance of housing sector in overall

development of the economy due to the following factors:

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Housing construction activities can generate opportunities for employment. In the

present context of jobless GDP growth, this issue assumes importance as the housing

construction provides massive job opportunities for both unskilled and skilled man

power.

Mass construction of houses will result in the benefits of the nation by the way of

healthy standard of living, motivation to save more and thereby providing sustainable

economic recovery.

This would also lead to growth in related industries as well.

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Initiatives on the part of Banks

The growth in retail banking has been facilitated by growth in banking technology and

automation of banking processes to enable extension of reach and rationalization of

costs. ATMs have emerged as an alternative banking channels which facilitate low-cost

transactions vis--vis traditional branches / method of lending. It also has the advantage

of reducing the branch traffic and enables banks with small networks to offset the

traditional disadvantages by increasing their reach and spread.

Ample liquidity in the banking system and falling global interest rates have also

compelled the domestic banks to reduce interest rates of retail lending.

Banks could afford to quote lower rate of interest, even below PLR as low cost [saving

bank] and no cost [current account] deposits contribute more than 1/3rd of their funds

[deposits].The declining cost of incremental deposits has enabled the Banks to reduce

their interest rates on housing loans as well as other retail segments loans.

Easy and affordable access to retails loans through a wide range of options / flexibility.

Banks even finance cost of registration, stamp duty, society charges and other associated expenditures such as furniture and fixtures in case of housing loans and cost

of registration and insurance, etc. in case of auto loans.

Offering retail loans for short term, 3 years and long term ranging term ranging from

15/20 years as compared to their earlier 5-7 years only.

Making financing attractive by offering free / concessional / value added services like

issue of credit card, insurance, etc.

Continuous waiver of processing fees / administration fees, prepayment charges, etc. by

the Banks. As of now, the cost of retail lending is restricted to the interest costs.

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RETAIL BOOM

Keeping pace with the average 8.5 per cent growth of the Indian economy over the past

few years, the retail banking sector in India has also witnessed phenomenal growth. It has

faced up to the need of the hour and introduced anytime, anywhere banking, for its

customers through ATMs, mobile and internet banking. It has also offered services like

D-MAT, plastic money (credit and debit cards), online transfers, etc. This has not only

helped in reducing operational costs but facilitated greater conveniences to its customers.

High-Tech Banking

ATMs - With growing technological innovations, banks have significantly expandedtheir ATM network over the past three years. According to the RBI data as of end-

June 2008, the number of ATMs in the country had climbed to 36,314 compared to

27,088 and 20,267 as at end-March 2007 and 2006, respectively.

Loan disbursement

Technology has facilitated the growth in retail loan disbursements, making the wholeprocess simpler and faster. The sector has delivered a growth of around 30 per cent per

year over the past 4-5 years. As per the RBI data, although the retail portfolio of banks

saw a slowdown to 29.9 per cent during 2006-07 from 40.9 per cent in 2005-06, the

growth was faster than the overall credit portfolio of the banking sector (28.5 per

cent).

Plastic Money

Credit cards have also played an important role in promoting retail banking. The use

of credit cards has been growing significantly over the last few years. The number of

credit cards outstanding at the end- June 2008 stood at 27.02 million as against 24.39

million in June 2007, with usage increasing by 10.73 per cent during this period.

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Core Banking Solutions (CBS)

The concept of CBS, which allows a customer to fulfil a wide range of banking

operation online, has come alive during the past four years. The number of bank

branches providing CBS rose rapidly to 44 per cent at end- March 2007 from 28.9 per

cent at end March 2006. Electronic fund transfer facilities and mobile banking are

expected to provide a further fillip to the retail banking in the coming years.

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Future Outlook

Indian retail banking, according to a report, is likely to grow at a CAGR of 28 per cent

till 2010 to Rs 97,00 billion. So, although the revolution in retail banking has changed

the face of the Indian banking industry as a whole, it has still miles to go.

The reasons for this shift to retail, particularly the housing finance segment, are many. The

important among these include:

- The poor credit off take to the corporate, commercial and other business sector because of

industrial slowdown.

- Risky nature of lending to corporate, given in industry recession and uncertainty prevalent in

the economy.

- High disintermediation pressure, leading many highly rated corporates to tap the domestic

and/or overseas markets directly for finance, rather than approaching the banks.

- Relatively safe nature of some of the retail credit finance with lesser incidence of loan turningbad.

- Rising disposable income, changing lifestyles/aspirations and willingness to spend for more

luxuries of the higher middle class.

- Better availability of loans, because of the consultancy lowering interest rates, as a result of

the low interest regime followed by the regulating authorities, the housing loans interest rates

hailed to almost 7.5 8% in last 5 years.

- Increased government incentives in form of tax rebates etc. in the case of certain loans like

housing loans.

- Banks are aware with abundant reserve requirement by RBI, they are searching revenues for

packing the surplus funds.

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SCOPE FOR RETAIL BANKING IN INDIA

All round increase in economic activity

Increase in the purchasing power. The rural areas have the large purchasing power at their

disposal and this is an opportunity to market Retail Banking.

India has 200 million households and 400 million middleclass population. More than 90%

of the savings come from the house hold sector. Falling interest rates have resulted in a

shift. Now People Want To Save Less And Spend More.

Nuclear family concept is gaining much importance which may lead to large savings,

large number of banking services to be provided are day-by-day increasing.

Tax benefits are available for example in case of housing loans the borrower can avail tax

benefits for the loan repayment and the interest charged for the loan.

MARKETING MIX

Types of Retail Banking Products

Retail banking is, however, quite broad in nature - it refers to the dealing of commercial banks

with individual customers, both on liabilities and assets sides of the balance sheet. Fixed, current /

savings accounts on the liabilities side; and mortgages, loans (e.g., personal, housing, auto, and

educational) on the assets side, are the more important of the products offered by banks. Related

ancillary services include credit cards, or depository services.

Todays retail banking sector is characterized by three basic characteristics:

Multiple products (deposits, credit cards, insurance, investments and securities)

Multiple channels of distribution (call center, branch, internet)

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Multiple customer groups (consumer, small business, and corporate).

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- Liability Products

Commercial banks offer a variety of "liability products" to consumers. These products are known

as "liability products" because they represent liabilities of the bank. Consumers generally know

them as "deposit" products. Typically, liability products include checking and savings accounts,

money market accounts and certificates of deposit (CDs). Bank liability products are useful to

consumers since they provide a safe place to keep their funds and give them the opportunity to

earn interest on cash that they may not immediately need. Liability products also give consumers

access to cash via checks and ATMs, and except for most checking accounts, they allow

consumers to earn interest on their deposits.

- Asset Products

Asset products are so named because they represent assets of the bank. Consumers generally

know them as "loan products." These include mortgages, car loans, personal installment loans

and credit card loans. These products allow consumers to purchase, for example, homes, cars

and merchandise which they otherwise could not immediately afford. Asset products earn

interest for the bank which is paid by the borrower.

- Credit/Debit Cards

A credit card is a card entitling its holder to buy goods and services based on the holder's

promise to pay for these goods and services. The issuer of the card grants a line of credit to

the consumer (or the user) from which the user can borrow money for payment to a merchant

or as a cash advance to the user.

A debit card provides an alternative payment method to cash when making purchases.

Functionally, it can be called an electronic cheque, as the funds are withdrawn directly fromeither the bank account , or from the remaining balance on the card.

- Investment Products

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Investment Products includes mutual funds, insurance, bonds and other fixed income

securities, annuities, etc.

Pricing

As the bargaining power of a retail customer is less than that of a corporate customer, banks

tend to charge the same price/interest rate for all retail customers, with the exception of high-

value segments (HNIs and NRIs). Banks set the price for liability products, without the

interference of the RBI. Asset products are priced based on the prime lending rates set by

banks for each asset category. Overt pricing and covert pricing are the two different

approaches to pricing

Promotion

The promotion of retail banking products is done through various avenues of promotion, such as

advertising, sales promotion, personal selling, brand building, public relations, telemarketing,

direct sales, and direct-response advertising.

Distribution

The common distribution channels in retail banking are branches, ATMs, the Internet, phone

banking, and mobile banking, EFTPOS, direct selling agents (DSAs), call centres, and

distribution network of alliance partners. There are some overlaps between the promotional

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PRICINGMETHOD

DEFINITION EXAMPLE

COVERT Hidden or implicit pricing

Cost to consumer may be non-monetary (eg time, psychic)

Free banking (no interest).Maintain minimum balance,notice for withdrawal of savings

OVERT Explicit charging

Cost is mostly obvious andmonetary

Transaction costs

Management fees


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avenues and distribution channels. For example, telemarketing and personal selling may be

outsourced to DSAs.

Cross Selling

Cross-selling helps the banks to increase their sales by selling different products to existing

clients. It helps improve customer retention, reduce the cost of customer acquisition, and enhance

customer lifetime profitability. Cross-selling also helps the customers in terms of reduced prices,

faster and easier processing and customized products. However, excessive cross-selling would be

viewed by the customer as harassment.

SPECIAL FEATURES OF RETAIL CREDIT

One of the prominent features of Retail Banking products is that it is a volume driven business.

Further, Retail Credit ensures that the business is widely dispersed among a large customer base

unlike in the case of corporate lending, where the risk may be concentrated on a selected few

plans. Ability of a bank to administer a large portfolio of retail credit products depends upon such

factors :

Strong credit assessment capability

Because of large volume good infrastructure is required. If the credit assessment itself is

qualitative, than the need for follow up in the future reduces considerably.

Sound documentation

A latest system for credit documentation is necessary pre-requisite for healthy growth of credit

portfolio, as in the case of credit assessment, this will also minimize the need to follow up at

future point of time.

Strong possessing capability

Since large volumes of transactions are involved, today transactions, maintenance of backups is

required

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Regular constant follow- up

Ideally, follow up for loan repayments should be an ongoing process. It should start from

customer enquiry and last till the loan is repaid fully.

Skilled human resource

This is one of the most important pre-requisite for the efficient management of large and diverse

retail credit portfolio. Only highly skilled and experienced man power can withstand the river of

administrating a diverse and complex retail credit portfolio.

Technological support

This is yet another vital requirement. Retail credit is highly technological intensive in nature,

because of large volumes of business, the need to provide instantaneous service to the customer

large, faster processing, maintaining database, etc.

ADVANTAGES OF RETAIL BANKING

Retail banking has inherent advantages outweighing certain disadvantages. Advantages are

analyzed from the resource angle and asset angle.

Resource Side

Retail deposits are stable and constitute core deposits.

They are interest insensitive and less bargaining for additional interest.

They constitute low cost funds for the banks.

Effective customer relationship management with the retail customers built a strong

customer base.

Retail banking increases the subsidiary business of the banks.

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Asset Side

Retail banking results in better yield and improved bottom line for a bank.

Retail segment is a good avenue for funds deployment.

Consumer loans are presumed to be of lower risk and NPA perception.

Helps economic revival of the nation through increased production activity.

Improves lifestyle and fulfils aspirations of the people through affordable credit.

Innovative product development credit.

Retail banking involves minimum marketing efforts in a demand driven economy.

Diversified portfolio due to huge customer base enables bank to reduce their dependence

on few or single borrower.

Banks can earn good profits by providing non fund based or fee based services without

deploying their funds.

The perceived stability of the income stream from the retail business is probably the most

important driver of the push into retail.

From a strategic point of view, this stability is expected to offset the inherent volatility of

revenues/profits from other lines of business, such as financial markets trading/corporate and

commercial banking. Indeed, a study of the earnings profile/balance-sheet structure of banks

such as ICICI or HDFC over the past few years does show the stability which has been

imparted to the overall revenue stream by the retail business.

This stability basically arises from the widely dispersed nature of the retail assets portfolio.

This means that banks are able to significantly diversify away specific-borrower risk and, at

the aggregate level, are exposed to the overall systematic or macroeconomic risk only. The

efforts to make retail banking a high volume and commodity-style business can be better

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understood in this backdrop. Technology plays a big part here in enabling the conduct of the

retail business as a high volume game.

DISADVANTAGES OF RETAIL BANKING

Designing own and new financial products is very costly and time consuming for the

bank.

Customers now-a-days prefer net banking to branch banking. The banks that are slow in

introducing technology-based products, are finding it difficult to retain the customers who

wish to opt for net banking.

Customers are attracted towards other financial products like mutual funds etc.

Though banks are investing heavily in technology, they are not able to exploit the same to

the full extent.

A major disadvantage is monitoring and follow up of huge volume of loan accounts

inducing banks to spend heavily in human resource department.

Long term loans like housing loan due to its long repayment term in the absence of proper

follow-up, can become NPAs.

The volume of amount borrowed by a single customer is very low as compared to

wholesale banking. This does not allow banks to exploit the advantage of earning huge

profits from single customer as in case of wholesale banking.

The retail credit explosion - particularly among the private sector banks is well established.

But what prevents this phenomenon from being labeled a retail banking expansion is the fact

that the growth so far has been restricted to the asset side only for the private sector banks.

The differences between the new private banks and public sector banks with respect to the

funding profile/retail asset profile stand out. For public sector banks, retail deposits (meaning

deposits of individuals) account for as much as 65 per cent of their overall deposit base but

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retail assets form only around 25 per cent of their total credit. For the private banks, retail

deposits are much lower at around 35-40 per cent of the total deposit base but retail assets

dominate their overall asset portfolios.

Significant implications flow from this diversity in funding/asset profiles. For private sector

banks, it is imperative to increase the retail share in their funding to sustain and improve the

profitability of their retail asset business. For the public sector banks, the high share of retail

deposits points to the opportunities ahead.

COMPETITION IN THIS SEGMENT

ICICI Bank has a total loan base of around Rs 2,00,000 crore as of March 2007 has 65 per

cent or Rs 1,30,000 crore of this under the retail category comprising housing loans, credit

card receivables, auto loans, personal loans and small business loans. The proportion of retail

loans is not much lower in the case of HDFC Bank also. The banks retail loans have grown

by around 35 per cent on average in the past few years and accounted for as much as 57 per

cent (Rs 28,000 crore) of its total loans of Rs 49,000 crore as of March 2007. And both the

banks have reiterated that retail banking will continue to be a key area of strategic emphasis

for them in the ensuing period.

The retail credit growth of nationalised banks does pale in comparison with that of the private

bank majors. Retail credit increased only from 10 per cent of nationalised banks total credit

in March 2000 to around 15 per cent of total credit in March 2007. In absolute terms, the

group of 20 nationalised banks had around Rs 1,35,000 crore of retail loans in March 2007.

The State Bank group had a higher proportion of its total loans under the retail category

around 25 per cent in March 2007 and this share was slightly more than double (10 per cent)

of what the group had under this category in March 2000. (The public sector banks

comprising the State Bank group and the nationalised banks account for around 60 per cent

of total banking business.)

For the banking sector as a whole, retail credit now forms around 25 per cent of the total

credit. Total bank credit as of June 2007 is Rs 19,00,000 crore. This means that just two

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banks, ICICI Bank and HDFC Bank, now account for close to one-third of the total retail

credit portfolio of the entire banking sector. And the way these two banks are going about

expanding their retail business investing heavily in expanding their physical branch

network, continued emphasis on alternative delivery channels such as ATMs/Internet, thetechnology initiatives they are undertaking to sustain the retail business as a high volume,

commodity-style business, all indicate that they could well account for a much higher share of

the total retail business in the ensuing period.

Going by international standards, a large portion of the Indian population is simply not

bankable taking profitability into consideration. On the other hand, the financial services

market is highly over-leveraged in India. Competition is fierce, particularly from local private

banks such as HDFC and ICICI, in the business of home, car and consumer loans. There,

precisely lie the pitfalls of such explosive growth. All banks are targeting the fluffiest segment

i.e. the upwardly mobile urban salaried class. Over-dependence on this segment is bound to

bring in inflexibility in the business.

The foreign banks have identified this problem but there are certain systematic risks involved

in operating in the Retail market for them. These include regulatory restrictions that prevent

them from expanding their branch network. So these banks often take the Direct Selling

Agent (DSA) route whereby low-end jobs like sourcing or transaction processing are

outsourced to small regional layers. So now on, when you see a loan mela or a road show

showcasing the retail bouquet of an elite MNC giant, you know that a significant commission

earned out of any such booking gets ploughed back to our own economy. Perhaps, one of the

biggest impediments in foreign players leveraging the Indian markets is the absence of

positive credit bureaus. In the west the risk profile can be easily mapped to things like SSNs

and this information can be publicly traded. PAN is a step in this direction but lot more work need to be done. What has been a positive step towards this is a negative file sharing started

by a consortium of 11 banks. However, as a McKinsey study points out actual write-offs on

NPAs show a strong negative correlation with sharing of positive information.

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Citibank, HSBC and Standard Chartered all in India for more than a century, and with relatively

large retail networks seem to have no pressing need to acquire a local bank. Established foreign

banks have preferred to take over customers or businesses from other foreign banks that want to

leave. Thus HSBC, in recent years, has acquired customers from France's BNP, Germany'sDeutsche Bank and Japan's Bank of Tokyo-Mitsubishi. ABN Amro took over Bank of America's

retail business.

Though the Indian financial sector does not have a sub-prime market, retail lending has increased

by over 30 per cent year on year between March 2006 and March 2007 underscoring need for a

caution, an ASSOCHAM Eco Pulse (AEP) Study has revealed.

As per the AEP Study on `Retail Lending, ICICI Banks retail advances increased by 39 per cent

at March 31, 2007, which constituted 65 per cent of advances. Punjab National Banks retail

credit constitutes 22.7 per cent of its net credit. Retail loans of State Bank of India, one of the

largest Banks in India constitutes 21.50 per cent of its total loan book.

Competition in the personal loans market has increased with the entry of multinationals, private

banks and NBFCs. Citi Financial and GE Money are the oldest players in this market. However,

in recent times, companies like ABN Amro, HDFC Bank, HSBC, ICICI Bank, DBS

Cholamandalam, Fullerton India and Religare have been increasingly focusing on the personal

loan. In most cases, the sub-prime market for these players constitutes somewhere between 5-20

per cent of the monthly disbursements.

Though some players like Citi Financial and Fullerton go through a personal screening of

customers, this is not a practice being followed by everyone.

Most of the commercial banks have focused on retail lending by registering an increase of about32 per cent with a subsequent reduction of 13.75 per cent in their NPAs on a y-o-y basis during

the financial year 2006-07.

It further revealed that among the major commercial banks topped the list in extending loans in

the retail segment. The then CBOP saw a huge growth of 65 per cent in their retail business in FY

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2006-07. Others in the pack doing well in this area of lucrative retail banking included ICICI

Bank (38.5 per cent), Bank of India (35 per cent), Dena Bank (33 per cent), Allahabad Bank (29.3

per cent) and HDFC Bank (22.9 per cent).

STRATEGIES FOR INCREASING RETAIL BANKING BUSINESS

Constant product innovation to match the requirements of the customer segments

The customer database available with the banks is the best source of their demographic and

financial information and can be used by the banks for targeting certain customer segments

for new or modified product. The banks should come out with new products in the area of

securities, mutual funds and insurance.

Quality service and quickness in delivery

As most of the banks are offering retail products of similar nature, the customers can easily

switchover to the one, which offers better service at comparatively lower costs. The quality of

service that banks offer and the experience that clients have, matter the most. Hence, to retain

the customers, banks have to come out with competitive products satisfying the desires of the

customers at the click of a button.

Introduction of new delivery channels

Retail customers like to interface with their bank through multiple channels. Therefore, banks

should try to give high quality service across all service channels like branches, Internet,

ATMs, etc.

Tapping of unexploited potential and increasing the volume of business

This will compensate for the thin margins. The Indian retail banking market still remains

largely untapped giving a scope for growth to the banks and financial institutions. With

changing psyche of Indian consumers, who are now comfortable with the idea of availing

loans for their personal needs, banks have tremendous potential lying in this segment.

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success in this area. In short, bankers have to run very fast even to stay where they are now. It

is the survival of the fastest now and not only survival of the fittest.

CHALLENGES TO RETAIL BANKING IN INDIA

The issue of money laundering is very important in retail banking. This compels all the

banks to consider seriously all the documents which they accept while approving the

loans.

The issue of outsourcing has become very important in recent past because various core

activities such as hardware and software maintenance, entire ATM set up and operation

(including cash, refilling) etc., are being outsourced by Indian banks.

Banks are expected to take utmost care to retain the ongoing trust of the public.

Customer service should be at the end all in retail banking. Someone has rightly said, It

takes months to find a good customer but only seconds to lose one. Thus, strategy of

Knowing Your Customer (KYC) is important. So the banks are required to adopt

innovative strategies to meet customers needs and requirements in terms of

services/products etc.

The dependency on technology has brought IT departments additional responsibilities

and challenges in managing, maintaining and optimizing the performance of retail banking

networks. It is equally important that banks should maintain security to the advance level

to keep the faith of the customer.

The efficiency of operations would provide the competitive edge for the success in retail

banking in coming years.

The customer retention is of paramount important for the profitability if retail banking

business, so banks need to retain their customer in order to increase the market share.

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One of the crucial impediments for the growth of this sector is the acute shortage of

manpower talent of this specific nature, a modern banking professional, for a modern

banking sector.

EMERGING ISSUES IN HANDLING RETAIL BANKING

Knowing Customer

Know your Customer is a concept which is easier said than practiced. Banks face several

hurdles in achieving this. In order to that the product lines are targeted at the right customers-

present and prospective-it is imperative that an integrated view of customers is available to the

banks. The benefits flowing out of cross-selling and up-selling will remain a far cry in the

absence of this vital input. In this regard the customer databases available with most of the public

sector banks, if not all, remain far from being enviable.

What needs to be done is setting up of a robust data warehouse where from meaningful data on

customers, their preferences, there spending patterns, etc. can be mined. Cleansing of existing

data is the first step in this direction. PSBs have a long way to go in this regard.

Technology Issues

Retail banking calls for huge investments in technology. Whether it is setting up of a Customer

Relationship Management System or Establishing Loan Process Automation or providing

anytime, anywhere convenience to the vast number of customers or establishing

channel/product/customer profitability, technology plays a pivotal role. And it is a long haul.

The Issues involved include adoption of the right technology at the right time and at the same

time ensuring volumes and margins to sustain the investments.

It is pertinent to remember that Citibank, known for its deployment of technology, took nearly a

decade to make profits in credit cards. It has also to be added in the same breath that without

adequate technology support, it would be well nigh possible to administer the growing retail

portfolio without allowing its health to deteriorate. Further, the key to reduction in transaction

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costs simultaneously with increase in ability to handle huge volumes of business lies only in

technology adoption.

PSBs are on their way to catch up with the technology much required for the success of retail

banking efforts. Lack of connectivity, stand alone models, concept of branch customer as against

bank customer, lack of convergence amongst available channels, absence of customer profiling,

lack of proper decision support systems, etc., are a few deficiencies that are being overcome in a

great way. However, the initiatives in this regard should include creating flexible computing

architecture amenable to changes and having scalability, a futuristic approach, networking across

channels, development of a strong Customer Information Systems (CIS) and adopting Customer

Relationship Management (CRM) models for getting a 360 degree view of the customer.

Organizational Alignment

It is of utmost importance that the culture and practices of an institution support its stated goals.

Having decided to take a plunge into retail banking, banks need to have a well defined business

strategy based on the competitive of the bank and its potential. Creation of a proper organization

structure and business operating models which would facilitate easy work flow are the needs of

the hour. The need for building the organizational capacity needed to achieve the desired resultscannot be overstated.

This would mean a strong commitment at all levels, intensive training of the rank and file, putting

in place a proper incentive scheme, etc. As a part of organizational alignment, there is also the

need for setting up of an effective Corporate Marketing Division. Most of the public sector banks

have only publicity departments and not marketing setup. A fully fledged marketing department

or division would help in evolving a brand strategy, address the issue of alienation from the

upwardly mobile, high net worth customer group and improve the recall value of the institution

and its products by arresting the trend of getting receded from public memory. The much needed

tie-ups with manufacturers/distributors/builders will also facilitated smoothly. It is time to break

the myth PSBs are not customer friendly. The attention is to be diverted to vast databases of

customers lying with the PSBs till unexploited for marketing.

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Product Innovation

Product innovation continues to be yet another major challenge. Even though bank after bank is

coming out with new products, not all are successful. What is of crucial importance is the need to

understand the difference between novelty and innovation? Peter Drucker in his path breaking

book: Management Challenges for the 21 st Century has in fact sounded a word of caution:

innovation that is not in tune with the strategic realities will not work; confusing novelty with

innovation (should be avoided), test of innovation is that it creates value; novelty creates only

amusement. The days of selling the products available in the shelves are gone. Banks need to

innovate products suiting the needs and requirements of different types of customers. Revisiting

the features of the existing products to continue to keep them on demand should not also be lost

sight of.

Pricing of Product

The next challenge is to have appropriate policies in place. The industry today is witnessing a

price war, with each bank wanting to have a larger slice of the cake that is the market, without

much of a scientific study into the cost of funds involved, margins, etc. The strategy of each

player in the market seems to be: under cutting others and wooing the clients of others. Most of the banks that use rating models for determining the health of the retail portfolio do not use them

for pricing the products. The much needed transparency in pricing is also missing, with many

hidden charges. There is a tendency, at least on the part of few to camouflage the price. The

situation cannot remain his way for long. This will be one issue that will be gaining importance

in the near future.

Process Changes

Business Process Re-engineering is yet another key requirement for banks to handle the growing

retail portfolio. Simplified processes and aligning them around delivery of customer service

impinging on reducing customer touch-points are of essence. A realization has to drawn that

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automating the inefficiencies will not help anyone and continuing the old processes with new

technology would only make the organization an old expensive one. Work flow and document

management will be integral part of process changes. The documentation issues have to remain

simple both in terms of documents to be submitted by the customer at the time of loan applicationand those to be executed upon sanction.

Issue concerning Human Resources

While technology and product innovation are vital , the soft issues concerning the human capital

of the banks are more vital. The corporate initiatives need to focus on bringing around a frontline

revolution. Though the changes envisaged are seen at the frontline, the initiatives have to reallycome from the back end. The top management of banks must be seen as practicing what

preaches. The initiatives should aim at improved delivery time and methods of approach. There

is an imperative need to create a perception that the banks are market-oriented.

This would mean a lot of proactive steps on the part of bank management which would include

empowering staff at various levels, devising appropriate tools for performance measurement

bringing about a transformation cant do to can do mind-set change from restrictive practices

to total flexible work place, say. By having universal tellers, bringing in managerial controllingwork place, provision of intensive training on products and processes, emphasizing, coaching

etiquette, good manners and best behavioural models, formulating objective appraisals, bringing

in transparency, putting in place good and acceptable reward and punishment system, facilitating

the placement of young /youthful staff in front-line defining a new role for front-line staff by

projecting them as sellers of products rather than clerks at work and changing the image of the

banks from a transaction provider to a solution provider.

Rural Orientation

As of now, action that is taking place on the retail front is by and large confined two metros and

cities. There is still a vast market available in rural India, which remains to be trapped.

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Multinational Corporations, as manufacturers and distributors, have already taken the lead in

showing the way by coming out with exquisite products, packaging and promotions, keeping the

rural customer in mind. Washing powders and shampoos in Re.1 sachet made available through

an efficient network and testimony to the determination of the MNCs to penetrate the ruralmarket. In this scenario, banks cannot lack behind.

In particular PSBs, which have a strong rural presence, need to address the needs of rural

customers in a big way. These and only these will propel retail growth that is envisaged as a key

strategy for portfolio expansion by most of the banks.

LATEST HAPPENINGS

Of late banks are coming up with innovative product offerings and promotion schemes to tie up

old customers and attract new customers. Some of the innovative offerings are listed below:-

Standard Chartered ANZ has launched the Home Saver Account. Along with the

Home Loan, your will get a FREE savings bank account into which you may deposit your

monthly salary. The EMI for the loan will be automatically reduced from your account. The

excess balance in your savings account will earn interest that will be adjusted against your

future EMI payments. The bank claims that the effective interest rate gets reduced by upto

45% because of this scheme.

Citibank

Offer loans with no guarantors . Most banks require that you present a guarantor who will

back you up if you default on your loan repayment. It can often be embarrassing to ask

friends to stand guarantor as most banks do not accept relatives as guarantors.

Citibank gives home loans upto 90% of the property value, the highest from any

bank (only Tata Hsg Fin. matched this offer)

Citibank offers a flexi-savings account to reduce your cost of borrowing. The bank

will automatically open a Saving Account from which you can give standing instructions

to deduct the EMI payments for the loan. You can then prepay the loan at any point in

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time and be given instant credit for the same, in case you get a large lump-sum annual

bonus from your employer. Should you require money in an emergency at any point you

can avail of an over draft on this savings account at an interest rate that is the same as that

on your Home loan. This works out much cheaper than taking an over draft on a normalsavings account

Dewan Housing Finance and LIC Housing Finance Ltd. offers consumer loans to their

existing Home Loan customers at a discount to market rates. The customer has to be a

housing loan borrower for the period not less than 6 month with a good repayment record

FREE DOUBLE PROTECTION PLAN in the form of Personal Accident Risk Cover and

Property Insurance

GIC Housing Finance Ltd.

GICHFL gives Consumer loans for purchase of home equipment at the same interest rate

as the home loan to customers at rates of interest that are the lower than other consumer

loans. The total loan amount including the housing loan can be upto 90% of the value of

the home. The tenure of the consumer loan is restricted to 5 years.

HDFC Bank Ltd

Offer Flexible (Customized) Repayment Schemes , keeping in

mind the fact that each individual has a unique problem requiring unique solutions, HDFC

has developed various repayment options like Step Up Repayment Facility, Flexible Loan

Installment and Balloon Payment Scheme

Pari Passu/ Second Mortgage Arrangements : HDFC has a tie-up

with a large number of Public Sector Organizations and banks which enable us to offer

loans to your employees with the flexibility of their spouse also availing a loan from

his/her own employer

Safe Document Storage Facilities : HDFC has state of art storage

facilities, which are theft and fire proof, at various locations where loan and property

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documents are stored. In this way valuable documents are stored safely over the period of

the loan and are released almost immediately after a customer repays his loan

A customer, after availing of a loan can approach HDFC anytime thereafter to increase

the Equated Monthly Installment which will help him repay the loan faster.Home Conversion Loan offered to its existing customers who are interested in

moving to a new house. Through this scheme customers can apply to have their existing

loan transferred towards the purchase of the new home. Customers may also apply for an

additional loan amount for the purchase of the new house. This gives the customer the

option of selling their existing house, if they wish to, without having to repay their old loan

The fixed rate loan can be converted to floating without any penalty charges. However, youwill be charged 2% if you refinance the loan from another company

HUDCO

Will waive the last 2 EMI payments on the loan if the customer has a

perfect repayment record with no bounced cheques. The loan amount initially taken must

exceed Rs. 5 lacs and no prepayments where to have been made during the tenure of the

loan. This is not available for the Floating rate loan.

There is a discounted start-up fee for Government employees. The

Administrating fees stand reduced from0.7% to 0.5% only.

Free triple insurance - property cover, earthquake cover and personal

accident cover. given free along with the loan ( not available for the Floating rate loan)

You can prepay the entire loan in any year without any prepayment

penalty. Each prepayment has to be at least 10% of the outstanding loan. However, the

floating rate loan has a 1% prepayment penalty.

HSBC

Offers flexible interest rate loans that can be reset every year

depending on the prevailing interest rates at that point. The new interest rate will be

applicable for the rolling one year

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Guarantor is required only for loans more than Rs. 10 lacs.

Else no guarantor

You can prepay up to 25% of the outstanding loan in any

year without paying a penalty. For amounts over that, 2% penalty levied.

ICICI

Launches a 30 year tenure home loan, the

longest available

ICICI also launches a variable rate loan with

a monthly rest basis versus the regular fixed rate loan that is on an annual rest basis

No guarantors are required for loans up to 20

years in most cases

No pre payment fees for any part payment as

long as the loan is not fully retired, else 2% charge on pre paid amount. You can repay up

to 33% of the outstanding loan in any year without paying penalty.

Free accident death cover for the owner

Special 100% funding for select properties

Higher eligibility for self-employed

professionals through segment-specific schemes

LIC Housing Finance Ltd. will lower quoted interest rate by 0.5% for loans covered by a

life insurance cover that is taken from LIC. The life cover must be taken for a minimum

period that covers the tenure of the Home Loan

State Bank of India

Offers Home Loans with no

start-up costs. Most banks charge as high as 2% as processing and administrative fees

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Prepayment is 2% if the entire

loan is pre paid else it is 0%. Avoid this penalty by prepaying up to 99% of your loan if

need be

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Tata Housing Finance

Offers Home Loans up to 90% of the value of the property and 100% in some new

projects.

Prepayment penalty of 0% for up to 4 prepayments in each year. The entire loan can

be retired without incurring any penalty.

Free accident and property insurance. The premium payable for a Tata AIG Single

Premium Life Cover can also be included in the loan amount sanctioned.

IDBI Bank offers balance transfer scheme. If you have taken a fixed rate loan at a high

rate of interest a few years back, then you can enter into an arrangement with IDBI bank to

transfer the loan to them at the current lower rate of interest. You will also get free gifts to

compensate you for the difference as the old and new EMI. The original EMI cheques will be

used by IDBI to recover the loan amount from you over the remaining tenure of the loan. You

will not get the benefits of any further fall in interest rates in this product.

Canara Bank to focus on retail loan segment

Canara Bank is looking at the retail credit segment as a thrust area, and hopes to close

the financial year with Rs 24,600 crore advances in this segment alone.

Our intention is to take the retail portfolio from 15 per cent of the total loan book to

20 per cent by March 2012, Mr H.S. Upendra Kamath, Executive Director, Canara

Bank, told Business Line.

To achieve this, the bank's focus will be on housing, trade, educational and auto loans.

Keeping the rapid urbanisation and increasing middle-class households in the country

in mind, we see opportunities for financing dwelling units, purchase of automobiles

and educational loans for children. These three offer immense scope for banks, he

said. The bank recorded a 27 per cent year-on-year growth in the retail segment from

Rs 6,668 crore to Rs 8,464 crore. Mr Kamath said that the bank has seen a pick-up in

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the housing loan segment, where in December 2009 there were about Rs 200 crore

disbursements.

Asset hubs. This has been largely possible due to the concentrated effort of the retail

asset hubs that the bank set up for centralised processing of retail loans, he added. Ithas so far set up 25 such centres across India. The bank has tied up with all leading

builders in each of these 25 cities. According to Mr Kamath, the bank would also give

an in-principle loan based on the customer's income documents if he/she wants to be

sure of a home loan before going in for a home. During the next financial year, we

will open 15 more retail asset hubs in the country, said Mr Kamath.

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CASE STUDY

A Comparative Study

As a part of the case study, an attempt is made to compare the two giants HDFC Bank and ICICI

Bank on the retail front. The two banks have carried forward their style statement in their

approach to business. ICICI Bank thinks big, is all for growth and hungry for market share.

HDFC Bank is more conservative and cautious, grows at a measured pace, without taking any

undue risks.

ICICI Bank Overview

ICICI Bank began its retail banking venture in mid-1999. By January 2000, it had moved on to

introducing home loans, car loans, personal loans and credit cards.

Realising the need for a bigger retail deposit base, the bank started building a branch and an ATM

network. The acquisition of Bank of Madura in March 2001 added 263 branches, many of them in

cities where ICICI Bank did not have a presence.

The merger of the erstwhile financial institution ICICI Limited with the bank in April 2002 gave

it a ready-made corporate clientele. The flip side was that ICICI Bank had Rs 10,000 crore (Rs

100 billion) of restructured assets for which it had to make provisions.

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Some of its accolades in the retail field

ICICI Bank edged past foreign banking majors Citibank and Standard Chartered Bank toemerge as the best retail bank in India, according to the latest issue of 'Asian Banker

Journal'.

ICICI Bank was second only to HSBC, Hong Kong in the list of top five retail banks in

the Asia-Pacific region.

ICICI Bank's success is attributed to its dynamic executive director Chanda Kochhar who

was named the retail banker of the year for 2004.

HDFC Bank Overview

HDFC Bank kick started its retail operations in 1998, a year before ICICI Bank. But in products

like credit cards, it was slow to get off the mark to which it defends itself by saying "Although

the asset yields may have been lower, we were able to cross-sell products so that the overall

returns were better. We may have grown slower than our peers, but the risks were lower."

However, HDFC Bank was handicapped because it could not sell home loans (because its parent

HDFC was in the business), though it has been originating them in the past one-and-a-half years.

Some of its accolades in the field:

HDFC Bank bagged the award for excellence in retail risk management among all the

Asian banks

Share of Wallet

2009 HDFC Bank ICICI Bank Branches 1725 1694

ATMs 4000 4883

Countries 18 18

Retail loans (% of gross advances) 61% 55%

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Retail Deposits (% of total deposits) 47% 28.7%

Home loans (Mkt Share) 40% 25%

Credit cards (Mn) 4.5 7

Net NPA 0.6% 2.19%

Comparing HDFC Netbanking vis--vis ICICI Netbanking

The common do-it-from-home facilities that both these Netbankings provide to their customers

are:

Viewing of Account summary, current balance, all historic transactions, mini and

detailed statements.

Linking of multiple accounts like Savings, Current, Credit cards , Demat, Mutual

funds and Fixed deposit accounts to a single Netbanking ID.

Transfer of funds (more on this in subsequent section)

Requesting a new demand draft or cheque book at your address.

Online payment of utility bills like Electricity, Gas, Landline and Mobile phone

bills, Insurance premiums, Credit card bills, etc.

Applying for new Fixed Deposits online.

Download of Account statements in Text, Excel and MS Money formats.

Online request for a hard copy of your bank statements at your address. ICICI

charges INR 50 whereas HDFC charges INR 30 per statement request.

Viewing status of deposited cheques or stopping the payment of a cheque.

Both use High-grade Encryptions for secure login and transactions. ICICI uses

RC4 128 bit whereas HDFC uses AES-256 bit.

Both have recently enabled Virtual Keyboard logins to stop any software from

recording your passwords when you type them. Virtual keyboard asks you to choose the

password letters by a mouse.

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However, there are some feature- by- feature differences.

ICICI Netbankings Funds Transfer facility is much more hassle-free. The facility to

transfer funds to yours or someone elses account, at intra or inter-bank branch, comes

readily with the ICICI Netbanking subscription. That is, the facility is ready to use and

you just need to add-in the new beneficiary for making the first transfer.

However, in case of HDFC Third Party Transfer , you are required to apply to this

service by filling up a hard copy of the Third Party Transfer Application Form and

submitting it to any of their Bank branches or ATM. Moreover, user experiences say that

the application is not processed promptly if you deposit the activation form at an ATM,

and may cause further delays upto weeks. Hence, it is preferred to walk into the HDFCbank and talk to the representative for activation

You can initiate the opening of a variety of accounts online through ICICI Netbanking by

submitting an online request with the details. For certain accounts like the Recurring

Deposits, the request gets completed without the need for you to visit the bank, and the

newly created account is accessible at your next login upon approval. On the other hand,in case for HDFC, this becomes possible only on visiting the bank branch. ICICI

Netbanking also offers online self-compounding accounts like Recurring Deposits and

Money Multiplier Account that HDFC Netbanking doesnt.

Though both ICICI and HDFC Netbanking offers the facility of receiving message

Alerts on your mobile to notify transactions, ICICI offers online customisation of thealerts upto the minutest details. For e.g, you can configure the threshold amounts above

which you need an alert for, and also specify whether you need the alert by an SMS or

email. You can as well toggle on/off the Insta-alerts for one or more services, say if you

dont want to receive the alerts for fund credits and need them only for debits.

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HDFC

Netbanking is also

lagging

behind as it

doesnt allow

Premature

liquidation of your Fixed Deposit and De-registration of Bill Pay facility whereas

these are enabled by ICICI Netbanking.

HDFC offers TDS Enquiry facility by which you can instantly check how much TDS (Tax

Deduction at Source) was applicable on your current and previous taxable years.

HDFC also allows re-generation of your IPIN (password) online in case you have

forgotten it. However in case of ICICI, you need to call up the customer care to request a

new Netbanking password and it will be delivered to you (by post!) in about 5 working

days.

HDFC Netbanking has a slightly simpler and user-friendly interface as compared to

ICICI. The ICICI Netbanking interface on the other hand, though quite appealing

aesthetically, ends up overwhelming the user with its plethora of options. It requires some

practice by a nave user to

master the usage of all the

options available on

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ICICI Netbanking, whereas HDFC Netbanking, with its lesser options, is intuitive to use

from Day 1.

The ICICI debit cards comes with a Grid feature for increased online transaction

security. The Debit cards have a table of 16 numbers at the back, and the online user isasked to enter 3 random numbers from this grid before the funds transfer can

complete.Though the additional process results in increased security, you must possess

your debit card at all times for transferring funds (or remember the sequence of the 16

two-digit numbers).

ICICI Netbanking is constantly upgrading and is offering more and more to their customers every few months. It currently offers new services like smsNCash ,

Bank@Home and Receive Funds , and seems to work hard to retain and grow its

customer base.

Comparing HDFC Home and Car Loans vis--vis ICICI Home and Car

Loans

ICICI Bank and HDFC Bank have slashed the interest rates on home and auto loans by 50 basis

points. The reduction in rates on home and auto loans will apply to new as well as existing

customers.

There has been a change in sentiments in retail segment. People are coming forward to buy

homes. Hence, more people are availing home loans. There has been some improvement

recently, though not to the level of last year. Taking the present rate cut into consideration, rates

for home loans up to Rs 30 lakh from ICICI and HDFC will be 9.25%. HDFC loans are cheaper

than ICICI loans for higher amounts.

Earlier, ICICI Bank had different slabs; rates for loans up to Rs 20 lakh, Rs 20-30 lakh, Rs 30

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lakh & above were 9.75%, 10%, and 11.5%, respectively. The

first two slabs have been merged now. For loans amounting to

more than Rs 30 lakh, the rate would be between 10% and

11%, according to the profile of the customer.

Comparing HDFC Credit Cards vis--vis ICICI Credit Cards

HDFC Bank has introduced a new feature for all its Credit Card

Customers known as NetLimit . Using this feature, you can set

aside a part of your credit limit exclusively for online spends .

The three options of NetLimit are 25%, 50% and 100% of credit

limit and this is a percentage of your existing limit. This feature is for your added safety and

comes FREE of cost.

HDFC Bank one of the conservative banks in India which had adopted quite a laid back

approach in growing its credit card business is in a better position now. The industry reports

around 30% of credit card customers as delinquent accounts while HDFC's Cards Division

reports it to be half of it . As on Sept-30th the bank had 4.5 mn credit card customers withaverage spending per active card is Rs 9,500.

ICICI Bank is the largest credit card issuer in the country and has a wide range of credit cards

designed to cater the needs of different sections of the society. The bank has classified its card

segment under different categories such as premium cards, classic cards, value for money cards,

co-branded cards, affinity cards and EMI cards.

Each credit card offered by ICICI is loaded with special offers and reward points along with bill

payment and balance transfer facility. The bank also offers specialized services on its special

cards.

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Comparing HDFC Deposits vis--vis ICICI Deposits

ICICI bank has announced increase in the interest rates of long-term deposits by 0.25-0.50%,with immediate effect, for two of its slabs.

ICICI announcement of hike in deposit rates, follows HDFCs announcement. HDFC also hiked

interest rates for various slabs over one year, by 0.25%, to as high as 1.5%.

Banks are hiking deposit rates, to attract more customers, as they need funds to park at the RBI.

RBI has hiked the CRR (cash reserve ratio) by 0.75%. This is a portion of deposits that banks

are required to park at RBI. RBI hikes this portion, whenever it sees that there is enough liquidityin the market and some money needs to be sucked back. At ICICI,

A 390 day deposit will fetch interest of 6.75%, as against 6.5% earlier.

A 590 day deposit will fetch interest of 6.75%, as against 6.25% earlier.

HDFCs hiked interest rates shown in table below:

Deposit Term Hiked interest rate(%)

Earlier interestrate(%)

One year-one day to One-year-15 days

6.5 6

One year-16 days 6.75 6.5

One year-17 days to Two years 6.5 6

Two years-one day to Twoyears-15 days

7 6

Two years-16 days 7.25 7

Two years-17 days to Threeyears

7 6

For above 3 years to 10 years 7.5 6

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CUSTOMER SURVEY

RESEARCH OBJECTIVE

Top of mind awareness of consumers for banks offering various retail products.

Factors influencing their purchase decision.

To study the comparative influence of various mediums of advertisements in creating

awareness amongst the consumers.

To find the immediate competitors in the minds of consumer for every retail product.

RESEARCH METHODOLOGY

An exploratory research was conducted in order the study the consumer perception about various

banks offering retail products and the banks they opt for.

Sample Size

A random sample of 50 were administered with the questionnaire and responses collected.

Respondents profile

Data was collected from respondents across

all age and income groups. Data relating to

age was collected. This segmentation helped

gain insights into the perception and

preferences across all age groups. Based on

the nature of retail banking products age

groups were identified and classified as

follows:

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Age Profile

15%

45%

23%

17%18-25 yrs

25-40 yrs

40-55 yrs

55 yrs & above


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Majority of the respondents belonged to the age group of 25 40 years.

The reason associated with it is that this group is the highest user of retail offerings.

Respondents earning Rs. 8000-

15000 constitute the major chunk

of the respondents using retail

products.

This income group qualifiesalmost all eligibility criteria of

retail offerings.

Retail products being also designed for students and retired people, they were considered

for the survey.

Salaried and businessmen being the

major users of retail users of retail

products.

Data Collection Tools

Data was collected using

Questionnaires. The Questionnaire consisted of suitable combination of Rating Scale,

Ranking Scale and open ended Questions in the level of importance.

An in depth interview was also conducted while administering the questionnaire.

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Income Profile

15%

15%

27%

30%

13%Non- earning< 50005000-80008000-15000> 15000

Proffessional Profil

7

29

15

9

StudentsSalariedBusinessmenRetired


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Sources of Data

Questionnaires were administered to people with experience of any retail offering,

currently using or used in the past.

DATA ANALYSIS

The respondents were asked to rank

the following factors according to their

preferences in the extent to which they

influence their purchase decision.

Majority of the respondents

considered processing time to

be the major influencing factor

for making purchase decision

while interest rate forms a

close second. Time is the most valuable factor in todays world of hectic schedules, thats

the reason why processing time is considered as most valuable factor in consideration list.

In the survey majority of the

respondents had availed

Vehicle loan followed by

credit cards.


belong to the age group of

25-40 and majority of them

are salaried people. This is

the stage where people try to bring alive their aspirations of having their own home and

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INFLUENCING FACTORS

35

7

15

6

37

05

101520

2530

3540

Interest rates

Processing

time

Goodwill

Word of mouth

Advertisement

Factors

%

Retail Products Avai

Ve hic le loa27 %Educatio

loan

6%

P e r s o n aloan10 %

credi t card25 %

Others11 %

Housinloan21%


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vehicle and hence these loan constitute major chunk of retail product availed by the

respondents.

BANKS CONSIDERED FOR RETIAL OFFERINGS

Respondents were asked which banks they considered for purchasing a retail offering before

selecting a specific bank. The responses for different retail products were as follows-


considered HDFC and ICICI for availing housing loan.

25 years of superior service has

helped HDFC in creating goodwill

in the mind of people and has helped

the bank for consideration.

ICICI has created a place of its own

in the mind of customers by its heavy advertisement and superior service in every

category of retail offering.

ICICI forms the major chunk in the

consideration list for vehicle loan

followed by HDFC.

Through aggressive advertisements

and superior service ICICI has

created a major place in the

consideration list.

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Banks Considered For V ehicle

SB I9%

OTHER16 %

HDFC25 %

CITI BAN15 %

ICICI35 %

Banks Considered For Housing L

OTHERS28%

HDFC37%

SB I12%

ICICI23%


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Majority of the

respondents considered

CITI BANK for credit

cards followed by

STANDARD

CHARTERED BANK

and HSBC BANK.

Being the first bank to

launch credit cards and

through aggressive advertisements in the past CITI BANK has created awareness

amongst the customers and by providing superior service it CITI BANK still acquire

major share in the consideration list.

SBI and HDFC form the

major chunk for

consideration in theeducational loan category.

Interest rates being the

major factor for

educational loan, PSUs

have the competitive edge

due to low interest rate.

Also extensive presence in varied locations seems to be the primary reason for this.

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Banks Considered For Credit C

OTHERS11 %

ICICI16%

STAN CHAR20%

HSBC18%

CITI BAN35%

Banks Con sidered For EducaLoan

SB I35 %HDFC

22 %

OTHER21 %

DENA BA N8%

HSBC9%

C O R P O R AT I

N B A N K

5%


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AWARENESS OF BANKS THROUGH VARIOUS ADVERTISING MEDIUMS

ICICI in general has a high level

of awareness among the people

owing to its extensive

advertising.

Among these, awareness through

television is the highest level

followed by newspapers.

Customers awareness of SBI

through various media was

measured.

SBI, being an old and

experienced player, has immense

awareness through the word of mouth media.

HDFC being a player, especially

in the home finance arena, has

taken the print media as its

stalwart for awareness.

The reason for the largest pie is

that a large chunk of the TG is

also an avid reader of

newspapers and magazines.

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Awa rness Of SBI Through Va rious Me

Radio 3%

Word Of Mou26 %

Billboards /Hoardings 17

New spapersMagazines

35 %

Television 1 9

Awareness Of ICICI Through VariouMediums

New spapers& Magazines

27%Radio 3%

Billboards /Hoardings

17%

Word Of Mouth 18%

Television35%

Awareness Of HDFC Through VariousMedium

Billboards /Hoardings

22%

Word Of Mouth 21%

New spapers& Magazines

39%

Radio 5%

Television13%


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The graph reveals

Retail the focus of indian banks

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